Fixed weight aggregates method - fisher''s ideal method, Financial Management

Fixed Weight Aggregates Method

In fixed weight aggregates method, the weights used are neither from base period nor from current period but from a representative period. These weights are generally referred to as representative weights or as fixed weights. These fixed weights are unaffected by the selection of the base period. This is the advantage under this method. The user of the method will be able to select a base year that is convenient to him enabling him to change the price base yet retaining the fixed weights.

The students may refer to the weights assigned to various industry groups constituting the Index of Industrial Production presented in the annexure.

Fisher's Ideal method

Prof. Irving Fisher has proposed a formula for constructing index numbers, which is called the 'Fisher's Ideal Index'. The Ideal index is given by the following formula:

Fisher's Price Index = 160_fisherideal method.png  x 100

As evident from the above formula,

Fisher's Ideal Index is the geometric mean of the Laspeyres and Paasche indices.

The following advantages can be cited in favor of Fisher's Ideal Index:

  1. Theoretically, geometric mean is considered the best average for the construction of index numbers and Fisher's index uses geometric mean.

  2. As already noted, Laspeyres index and Paasche index indicate opposing characteristics and Fisher's index reduces their respective biases. In fact, Fisher's ideal index is free from any bias. This has been amply demonstrated by the time reversal and factor reversal tests.

  3. Both the current year and base year prices and quantities are taken into account by this index.

    Fisher's Ideal Index

    808_fisherideal method1.png

    The index is not widely used owing to the practical limitations of collecting data. Fisher's Ideal Quantity Index can be found out by the formula,

    258_fisherideal method2.png

    x 100
Posted Date: 9/17/2012 2:49:49 AM | Location : United States







Related Discussions:- Fixed weight aggregates method - fisher''s ideal method, Assignment Help, Ask Question on Fixed weight aggregates method - fisher''s ideal method, Get Answer, Expert's Help, Fixed weight aggregates method - fisher''s ideal method Discussions

Write discussion on Fixed weight aggregates method - fisher''s ideal method
Your posts are moderated
Related Questions
Bond's potential returns are calculated using measures like Yield to Maturity (YTM) and cash flow yield. Both these measures are not free from s

If firm A has a higher debt-to-equity ratio than firm B then that means what

Explain about the market-based and bank-based systems. A clear distinction between market-based in USA and UK and bank-based systems as in Germany, Japan and France define by s

What are the IFRS 8 operating segments IASB issued IFRS 8 operating segments in November 2006 (which replaced IAS 14). This continues IASB's work in its joint short-term conver

When are the financial crises occurred? Financial crises arise where there is a large raise in asymmetric information into financial markets. Asymmetric information arises whil

Introduction to financial management: Meaning and defecation of the financial management Finance function Scope and content of financial function Functions and

Case Study: Volatility Trading (a) The understanding in this case study deal with Convertible as well as Reverse-Convertible bonds. These are interesting instruments by themsel

How does the theory of comparative advantage relate to the currency swap market? Answer:  Name recognition is very important in the international bond market. With no it, even a

Weighted Aggregates Index   In a weighted aggregates index, weights are assigned according to their significance and consequently the weighted index improves the accuracy of the

Modern approach at financial problems With the advent of technology and need to tighten shipsdue to competition, financial management became as much a science as art. Efficient